Flexible Fourier form for volatility breaks

Li Jing () and Walter Enders
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Li Jing: Miami University, Department of Economics, 800 H High Street, Oxford, OH 45056, USA, Phone: 5135294393

Studies in Nonlinear Dynamics & Econometrics, 2018, vol. 22, issue 1, 19

Abstract: This paper proposes a class of models: TRIARCH/TRIGARCH models that account for structural breaks in conditional variance using a variant of the flexible Fourier form. Based on the new model, three likelihood multiplier tests are proposed for the null hypotheses of (1) homoskedasticity in the presence of unknown structural breaks; (2) no structural changes in conditional variance; and (3) Integrated GARCH effect. The in-sample fit and out-of-sample forecasts of the TRIGARCH model and GARCH model are compared by simulations. We apply the new models to the SP500 returns. Our finding indicates level shifts in variance, and therefore, the almost integration indicated by the GARCH(1,1) model may be spurious.

Keywords: ARCH; flexible Fourier form; GARCH; spurious almost-integration (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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DOI: 10.1515/snde-2016-0039

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